Creditors Notice and Creditors Claims

Dispensing with Creditors Claims is the third basic step in conducting the probate of the estate. RCW 11.40 et seq. addresses estate creditor claims.

Creditors claims refer to the debts owed by the decedent from transactions prior to death.

Note:­ Debts incurred by the estate, after death, are, generally, considered administration costs. costs, including final arrangements, cremation and burial are handled differently than Creditors claims made against the estate.

Under Washington law, there are various methods available to resolve creditor claims against the estate. The Personal Representative will need to select the appropriate method depending on the circumstances of each probate. As always, it is prudent to discuss these choices and address implementation with an experienced probate attorney.

Time Limitation by statute: First, there is an applicable statute of limitations regarding claims by creditors. Under RCW 11.40.051, creditors claims are forever barred if not presented within two years of the date of death.

Time Limitation by Notice: Further, under the statutes, the Personal Representative may take action, by notice, to shorten the available claim period to four months.

Shortened Claim Period by Notice

In order to take advantage of the shortened Creditors Claims Notice period, the Personal Representative must follow all of the statutory requirements. This will reduce the time creditors have to make claims against the estate from two years to four months. It is critical that the Personal Representative become familiar with these laws, including RCW 11.40.010 through 11.40.900, inclusive. Generally, Notice to Creditors involves several steps. These include indirect (published) notice, Notice filed with Court, Notice provided to State of Washington, and Direct notice (to reasonable ascertainable creditors of the estate).

A. Indirect (Published) Notice

Indirect Notice to creditors requires the Personal Representative to publish notice in a legal newspaper in the manner and means described escribed under RCW 11.40.020.

Publishing notice to creditors in a legal organ (newspaper) is designed to notify the general public that if a party has a claim against the decedent (estate) that probate is open and they must make that claim in a timely manner. The notice must be in the form prescribed by RCW 11.40.020 and RCW 11.40.030  with the required information listed under these statutes. The newspaper’s classified office will explain the cost and formatting it requires to publish notice.

The notice must be published once a week for three successive weeks, in a newspaper that circulates in the county where the decedent resided.  Depending on the newspaper, publication costs vary widely. Check different sources for best pricing but make sure you are publishing in a legal organ of that jurisdiction. If the probate is filed in a jurisdiction different from where the decedent lived, it is prudent to run the notice in each locality.

After the legal organ (newspaper) publishes the notice three times, the newspaper should provide the Personal Representative with an affidavit of publication, stating that the newspaper printed the notice once per week for three successive weeks. The Personal Representative must file this affidavit with the probate court. Once the four-month period, following the first date of publication has ended, the Personal Representative must check with the clerk’s office of the probate court to determine if any creditor’s claims were submitted in response to this notice. Creditors claims must be presented to both the address stated in the notice and filed with the court in order be valid. In addition, claims must be presented in the manner described by RCW 11.40.070, as well.

B. File Probate Notice to Creditors

The Personal Representative is required to file the Notice to Creditors with the probate court. This notice would include the same information as the published Notice to Creditors in the form described and illustrated in RCW 11.40.030. An example is provided here.

C. WDSHS Notice to Creditors

As described previously, upon opening of probate, the Personal Representative sends notice of appointment to the Department of Revenue. Now, the Personal Representative is required to send the Notice to Creditors to the state by way of the Department of Social and Health Services in the manner described under RCW 11.40.020(d).

Please note: this step is very similar to the step giving notice to the Washington Department of Revenue. Although they are similar, both must be completed in the manner required by applicable statutes.

At the same time the personal representative files the Probate Notice to Creditors, with the probate court, the personal representative must mail a copy of the probate notice to creditors to the Washington Department of Social and Health Services (WDSHS) Office of Financial Recovery. The personal representative should prepare two versions of this document: the first to mail to WDSHS, and the other to file with the court. Click here for the WDSHS version, and here for the version to be filed with the Court. The distinction between these two is critical.

The version that is mailed to WDSHS must include the decedent’s social security number; the version filed with the court must not. The version filed with the court becomes a public record and there is a concern that Identity thieves would access a decedent’s social security number to steal their identity after they have passed away. Protecting this information, when filing documents with the court, is the Personal Representative’s responsibility by law.

In order to properly file the declaration of mailing and probate Notice to Creditors to WDSHS, the Personal Representative must redact the social security number on the version to be filed with the court. Then, file that version with an appropriate, signed, Creditors Notice Declaration of Mailing. The Declaration states that the personal representative swears, under penalty of perjury, that they mailed the notice on the specified date, to the address listed on the template. Filing this declaration creates an evidentiary record for the court that the Personal Representative complied with this notice requirement.

D. Direct Notice

In addition to publishing notice to creditors, filing the Notice with the court and notifying DSHS, the Personal Representative must identify “reasonably ascertainable creditors” and provide these “direct notice.

Under the law, a “reasonably ascertainable” creditor is described by RCW 11.40.040, and include creditors that the personal representative would discover upon exercising reasonable diligence.  This means that the Personal Representative has to work to identify persons and parties that may have a claim against the estate. Methods demonstrating that the Personal Representative exercised reasonable diligence includes reviewing the decedent’s mail, bank statements, and credit cards, to determine any individuals or businesses to whom the decedent owed money.

Another method for identifying potential creditors is to request the decedent’s credit report from a credit reporting agency, such as Experian. To request a credit report, the personal representative should write a letter to the credit reporting agency, identifying the decedent, including the decedent’s social security number, date of death, and last address, identifying himself or herself as the personal representative, the probate court, and the cause number. With this letter, the personal representative must include a copy of the letters of administration and the decedent’s death certificate. The credit report will be mailed to the personal representative, and will show any credit cards held by the decedent, as well as the decedent’s standing with those credit cards, and any companies that had performed a credit check on the decedent. The report will also provide addresses for those companies, which can be helpful for preparing direct notices.

Note: The decedent’s credit report may also indicate potential assets, as well as, potential creditors.

Once potential creditors are identified, the Personal Representative must send direct notice to that creditor. The notice should include a copy of the Probate Notice to Creditors, previously filed with the court, and a creditor’s claim form. An example of the creditor’s claim form can be found here.

Once a direct notice has been sent, the creditor has thirty days (or four months from first date of publication, whichever is longer) to respond to the notice. If the creditor fails to respond within the applicable timeframe, that creditor’s claim is barred.

It is the responsibility of the Personal Representative carefully track where and to whom direct notices are sent. The Personal Representative will file an affidavit, at the end of the creditors claims process identifying the steps taken to identify the decedent’s creditors, who was sent direct notice for creditors claims, and any responses to these claims. An example of the affidavit, along with additional information regarding the end of the creditors period, is provided under the following section.

E. Conclusion of Creditors Claim Period

1. Checking for filed claims

Approximately one week after the creditor’s window closes (the four months following first publication, and the thirty days following direct notices), the Personal Representative must go to the Clerk’s office in the probate court. This is where creditors may file claims against the estate. If the creditor’s window has expired, and a creditor’s claim has not either been filed AND mailed directly to the Personal Representative, that claim is barred.

2.Filing declaration of reasonable review

After the time frame for creditor’s claims has expired, and the personal representative has responded to all claims received, the Personal Representative must complete a Declaration Regarding Reasonable Review for Decedent’s Creditors. The statutes provide a description of what might be included in the declaration. See e.g., RCW 11.40.040(3). This declaration allows the Personal Representative to build an evidentiary record demonstrating compliance with their duties under the creditors claims statutes. The declaration includes explaining the steps that the Personal Representative undertook to ascertain all of the decedent’s creditors, and listing the potential creditors to whom direct notices were sent. The personal representative, also, certifies that the time period for submitting creditor’s claims has closed, and that the personal representative appropriately responded to all claims. Once signed, the Personal Representative must sign and file this declaration with the probate court.

F. Presented Creditor’s Claims

The method for presenting claims against the estate are described by statute, under RCW 11.40.070.  The Personal Representative is responsible for reviewing and responding to every creditors claim presented. The Personal Representative must determine which claims to accept and which claims to reject. For a valid claim, the creditor must submit the amount of the claim and the facts surrounding the claim within the applicable timeframe. If the creditor fails to submit the claim in time, fails to send to the Personal Representative AND file with the court, or does not provide sufficient facts to justify the claim, the Personal Representative must reject the claim. If the claim is submitted in the correct time-frame, and meets the requirements of RCW 11.40.070, the personal representative must accept the claim. Whether the claim is accepted or rejected, the personal representative should respond in writing, in order to preserve a record that the personal representative responded to the claim.

Whether to accept or reject or negotiate claims is a fact specific matter. The Personal Representative must be fully cognizant of the statutory requirements in order to adequately address claims presented by creditors, including those described by RCW 11.40.080; 090; 100 . In addition, an experienced, licensed, probate attorney can provide necessary guidance. It is important to remember that there are statutory penalties associated with failing to follow the requirements of the law when responding to creditors claims.

G. Solvency versus Insolvency

When the value of the estate’s assets is greater than the amount of the estate’s debts (creditor claims), the estate is considered solvent. On the contrary, when the amount of the estate’s debts is greater than the value of its assets, the estate is considered insolvent.

Whether the estate is solvent or insolvent is an important consideration of the court. If at any time during the course of the probate, the Personal Representative determines the estate is insolvent, they should promptly notify the court and must notify creditors. Often, if non-intervention powers were granted at appointment, these will be revoked to allow the court more involvement in the probate. Increased judicial oversight will help ensure that limited estate resources are applied in the appropriate manner.

IMPORTANT NOTES:

1. If a creditor’s claim is secured by any property of the decedent, the shortened creditors claim process does not affect the right of a creditor to realize on the creditor’s security, whether or not the creditor presented the claim in the manner provided in RCW 11.40.070. See e.g. RCW 11.40.135.
2. Also, Estate Taxes are a separate matter from creditors claims. Potential tax liabilities should be reviewed with a Certified Public Accountant. Tax liabilities are not eliminated by use of the shortened creditors claim process.
3. In addition, if there is an action or litigation pending against the decedent at the time of death, this action survives the death. In these cases, the personal Representative is strongly encouraged to obtain professional legal representation. See e.g. RCW 11.40.110.
4. Further, if a judgment was entered against the decedent during the decedent’s lifetime, an execution may not issue on the judgment after the death of the decedent. The judgment must be presented in the manner provided in RCW 11.40.070, but if the judgment is a lien on any property of the decedent, the property may be sold for the satisfaction of the judgment and the officer making the sale shall account to the personal representative for any surplus. See e.g. RCW 11.40.130.

H. Personal representative claim against the Decedent’s estate

In many cases, the personal representative is someone that was close to the Decedent during the Decedent’s lifetime. As such, situations arise where the personal representative may have a claim against the Decedent’s estate. Since the personal representative is in a position to give preference to their own claim, the law requires additional oversight of claims by a personal representative.

Just like any other creditor, the personal representative must present their claim in accordance with RCW 11.40.070. After presenting the claim, the personal representative must petition the probate court to allow the claim, under RCW 11.40.070. The personal representative must go through this process regardless of whether the court granted nonintervention powers to the personal representative.

Please note that this section is subject to change under Senate Bill 5132, which goes into effect on July 25, 2021. At that time, the claim must be resolved and settled pursuant to RCW chapter 11.96A (the Trust and Estate Dispute Resolution Act).